The free ride that the money market fund industry has enjoyed over the last 30 years is over.
I have watched as the money market fund industry was born in the 1970s as a result of Regulation Q, which restricted the interest banks could pay on deposits. MMFs did not have that restriction and therefore started buying fixed-income securities with "market rates" and selling their shares to the public, providing a better return than a bank account would. This has hurt the community banking industry tremendously, making it more expensive to raise deposits since the early 80s, when Regulation Q was eliminated.
Today MMFs compete with banks (both commercial and investment), trust departments and numerous other enterprises that unlike MMFs are forced, by regulation and market requirements, to provide margin collateral on their short term borrowings, put their capital at risk to back the transactions, and pay for FDIC insurance for deposits. (Recall how Bank of New York Mellon
On what basis do the MMFs think that they are entitled to run a multi-trillion dollar business, in this day and age, without any capital to stand behind any mistakes they may make?
What is fair, and it’s about time, is that they hopefully will be required to put some capital in and report a daily net asset value. They won’t like it. Who would in their position?
Congratulations to the Securities and Exchange Commission, which is reportedly
Money market funds,
Jorge H. Coloma is a managing director at TCG Financial Services LLC, an investment advisor in Coral Gables, Fla.